Alibaba Isn't Simply Following ByteDance's Example

After ByteDance sold Moonton, is Alibaba also letting go of Lingxi Interactive Entertainment?

Recently, according to Game New Knowledge, Alibaba Group plans to sell its gaming business brand, Lingxi Interactive Entertainment, for a price range of RMB 7-9 billion (approximately USD 1-1.3 billion). Potential buyers include several A-share listed companies such as 37 Interactive Entertainment, China Ruyi, Century Huatong, and Giant Network, with private equity firms also considering a consortium-led acquisition.

Once the news broke, public discussion quickly attributed the move to "pessimism about the broader entertainment sector" and "Alibaba abandoning gaming." In some narratives, this marked another setback for the broader entertainment division, following Youku and Alibaba Pictures, as another underperforming segment was cleared out.

However, attributing this decision solely to the broader entertainment sector misreads both Lingxi Interactive Entertainment's current state and the true logic behind Alibaba's strategic retrenchment.

01 A Pre-Announced 'Divestiture'

In September 2020, Alibaba upgraded its gaming business into an independent division, initially placing it under its "Innovation Businesses" segment and led by Zhan Zhonghui. By this point, Lingxi Interactive Entertainment had already been removed from the direct oversight of the broader entertainment division.

During this period, Lingxi Interactive Entertainment experienced its heyday. Launched in 2019, Romance of the Three Kingdoms: Strategic Edition became a blockbuster, leveraging mature SLG (Strategy Game) gameplay and aggressive user acquisition strategies to consistently rank among the top-grossing apps on the App Store.

According to estimates from Sensor Tower and other data platforms, the game generated over RMB 10 billion in global revenue within just over a year of launch, becoming Alibaba's first true gaming hit and outperforming products from many established industry giants in terms of revenue.

The peak was followed by a prolonged plateau. After Romance of the Three Kingdoms: Strategic Edition, Lingxi released titles such as Romance of the Three Kingdoms: Fantasy Land, Romance of the Three Kingdoms: Tactical Edition, and Ru Yuan.

Among them, Romance of the Three Kingdoms: Fantasy Land amassed over 15 million players in four and a half years, with peak monthly revenue exceeding RMB 800 million; Ru Yuan secured over 15 million pre-registrations for its domestic release, with first-month cross-platform revenue nearing RMB 300 million. However, none of these products replicated the explosive success of Romance of the Three Kingdoms: Strategic Edition.

The "single-core" dilemma in product structure posed business challenges for Lingxi as a gaming company. However, the true determinant of its fate was Alibaba's group-level strategic shift.

In March 2023, Alibaba initiated a major organizational restructuring under the "1+6+N" framework, unveiling six business groups. Lingxi Interactive Entertainment was reassigned to the broader Entertainment Group.

This time, Fan Luyuan, chairman of the broader Entertainment division and president of Youku, formally took charge of the gaming business. In January 2024, Fan Luyuan, in his capacity as CEO of Alibaba's broader Entertainment division, concurrently assumed the presidency of Lingxi Interactive Entertainment, emphasizing "accelerating internationalization."

A year and a half later, Lingxi Interactive Entertainment's reporting line shifted from Fan Luyuan's Orca Entertainment to report directly to Alibaba Group CFO Xu Hong. The transfer of management authority from a business line to a financial line typically signals that a core business has lost its growth momentum and competitive edge.

To some extent, Lingxi Interactive Entertainment was not a drain on the broader Entertainment division but rather a rare self-sustaining unit capable of generating revenue and feeding back into the ecosystem. Attributing the divestiture motive solely to the "weakness" of the broader entertainment sector lacks logical coherence.

So, where does the true driving force behind this decision lie? It requires stepping back from the micro-level entanglements within the entertainment sector to examine the profound restructuring underway at Alibaba Group.

02 Alibaba Streamlines Operations: Gaming Is Not the 'Priority'

In September 2023, Joe Tsai and Eddie Wu officially took over Alibaba. Almost immediately, the new leadership outlined a clear direction: return to core competencies and achieve laser-focused concentration.

During the Q3 2023 earnings call, Eddie Wu fully elaborated on the new strategy, anchoring Alibaba's future in three directions: "technology-driven internet platform businesses, AI-driven technology businesses, and a globalized commercial network." Regarding non-core businesses, he stated, "We will realize value through early profitability or divestiture."

This statement set the tone for a series of asset reallocations. From Intime Retail to Sun Art Retail, from partial stakes in Bilibili to various mid-sized investments, Alibaba began frequently assuming the role of seller in secondary and M&A markets.

Alibaba's fiscal year 2026 revenue surpassed RMB 1 trillion for the first time, while Lingxi Interactive Entertainment's annual revenue, estimated at RMB 3-4 billion based on Sensor Tower product data, accounted for less than 2% of Alibaba's total revenue.

In financial reports, Lingxi Interactive Entertainment was grouped with Hema, DingTalk, and other units under Alibaba's "All Other" business segment, with only aggregated data disclosed. Its last standalone mention was in the Q1 2025 earnings report, which simply noted "significant improvement in Lingxi Interactive Entertainment's operating performance."

As a content industry, gaming involves long development cycles, high uncertainty in creating hits, and limited direct synergy with Alibaba's strong e-commerce transaction mindset and cloud services technology foundation—inevitably placing it within the "non-core business" evaluation framework.

In early 2025, Alibaba announced plans to invest RMB 380 billion over three years in AI-related technologies and industrial layout. During the latest earnings call, CEO Eddie Wu stated that annual revenue from cloud and AI commercialization would exceed USD 100 billion within five years.

Given limited resources, selling Lingxi Interactive Entertainment to unlock asset value and reallocate capital and talent to core battlegrounds like AI, cloud computing, and e-commerce represents a commercially logical choice.

More importantly, China's gaming industry has entered an era of stock competition, with a pronounced winner-takes-all effect. Tencent and NetEase dominate over 70% of the market share, leaving other players to scramble for the remaining scraps.

ByteDance's retreat from gaming serves as a clear mirror.

In March 2026, ByteDance sold Moonton Technology to Savvy Games Group, a subsidiary of Saudi Arabia's sovereign wealth fund PIF, for over USD 6 billion. Moonton's Mobile Legends: Bang Bang is a leading MOBA (Multiplayer Online Battle Arena) mobile game in Southeast Asia, boasting stable cash flow and global influence.

ByteDance acquired Moonton for USD 4 billion in 2021. This sale not only realized accounting gains but also sent a clear signal: even competitive gaming assets, when offering limited synergy with the core short video business, would be decisively divested.

The similar decisions made by two internet giants around the same time cannot be explained by "strategic missteps" at either company. Instead, they reflect a collective choice by China's internet industry to enter a "strategic consolidation phase," shifting from diversified expansion to deepening core capabilities.

In fact, the broader Entertainment division itself is seeking a balance between stemming losses and pivoting.

After years of losses, Youku achieved profitability by strictly controlling content costs and focusing on revenue-sharing dramas; the film segment improved profitability through adjusted investment and distribution strategies; Damai emerged as a key entry point for offline entertainment amid the recovery of the live performance market. By November 2025, Orca Entertainment achieved profitability for three consecutive quarters.

The broader Entertainment division still faces numerous challenges, but it has transformed from a bottomless "entertainment empire dream" into a more pragmatic "content-plus-services" business.

The sale of Lingxi Interactive Entertainment may, in fact, represent the maximization of its asset value.

In the hands of a suitable buyer, Lingxi's development team and IP portfolio might find more fertile ground for growth. For Alibaba, however, it would constantly weigh: Is spending on gaming truly more future-proof than investing in AI large models?

If Lingxi Interactive Entertainment is indeed sold, it underscores how non-core businesses once viewed as "gateways," "ecosystems," or "closed loops" must ultimately undergo value reassessment during periods of strategic retrenchment.

In this reassessment, there is little room for sentiment—only the cold, hard direction of capital, traffic, and the tides of the era.

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